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Bear Stearns Bailout To Pay Bonuses?


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2008 Mar 16, 9:32am   26,998 views  300 comments

by Patrick   ➕follow (55)   💰tip   ignore  

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From a reader:

Did everyone forget that Wall St. bonuses get paid in march? The Fed just guaranteed all of Bear's bonus checks will clear, $3+ billion! The company may fail but all the boys get paid.

Wow, is this true? The Fed is now printing money to pay Wall Street bonuses?

An alternate explanation I heard is that Bear is somehow essential to the mechanism for the Fed's money creation, but I don't understand how that works.

Patrick

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1   OO   2008 Mar 16, 9:36am  

don't worry, USD will be worthless soon. So let them get paid in millions of worthless papers.

In just an hour, Yen advanced close to 2% from 98.xx cents to 96.xx cents. At this speed, USD will reach parity with Yen very soon.

Have you gotten out of USD yet?

2   Richmond   2008 Mar 16, 9:41am  

Have any of you money folks ever seen such a rapid collaps or is it a case of Bear having to get all of its ducks in a row before bailing.

3   OO   2008 Mar 16, 9:44am  

Actually I have seen more dramatic moments in Asian Financial crisis when Indonesian Riggit and Thai Baht devalue 80-90% within days.

I think we are approaching a critical point. And once we reach that point, I won't be surprised to see USD drop 20-30% within a week against other major currencies and even more against commodities.

4   DennisN   2008 Mar 16, 9:46am  

Wow. http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html

JP Morgan is buying Bear Stearns for $2 a share. Didn't BSC close last week around $30?

5   OO   2008 Mar 16, 9:49am  

poof, there goes the stock options and retirement accounts for the senior paper pushers at BSC. Woohoo, I feel so sorry for them.

6   Richmond   2008 Mar 16, 9:50am  

I don't have the background to understand, fully, what's going on from every angle, but I am darn sure that I am watching history unfold before my eyes.

7   OO   2008 Mar 16, 9:53am  

Is it too late to put MER?

8   revengeofaone   2008 Mar 16, 10:32am  

NOT INVESTMENT ADVICE, just a thought:

1. As Roubini states: when the U.S. gets a cold, the world gets sick too...er something like that...

2. Has the Fed actually been creating money recently (last 6 months or so)? I don't think it is so clear. Just because you give loans backed by crap MBS doesn't mean you create money. It means that the taxpayers are taking a big risk for the financial players. (and no, you can't know if they are creating money either, because we have an opaque system) Just because the dollar has devalued (which as we know can occur for reasons outside of "fundamentals", i.e.: speculation), it does not = creating money or inflation. The dollar creation has already happened vis a vis the housing bubble for the past several years. Credit is now tight which is actually deflationary, not inflationary. And even if it were true that the Fed is [hyper]inflating...what does that lead to but eventual collapse?
Also, just because the fed is trying to wring liquidity out of the banks, does not make them lend or create money as demonstrated by the repeated attempts by the Fed to get the banks to borrow and lend!

Thus (based on pt#1) I don't think it's impossible to imagine a scenario once the stuff hits the fan, when everyone has to own up to their balance sheet that they have crap MBS worth bubkes, where it's bad EVERYWHERE AROUND THE WORLD, and in that case, I can see it possible that the USD is not quite so bad as some other currencies that are currently more valued.

Either that or Japan style deflation for a couple decades.

Again, what do I know? I'm no financial planner...just a bubble buff following this thing on Patrick.net!

Like anything else with this crazy economic era we're in, I have no clue if i'm right, and even if I'm right...how long it would take to sort out.

The right thing to do is kind of hard to pick ahead of time. I mean who would have thought that right after the tech bubble was the time to mortgage yourself to the limit and be rewarded handsomely?

9   northernvirginiarenter   2008 Mar 16, 11:06am  

White House has called an emergency meeting of the plunge protection team tomorrow.

Bank holiday coming to a theatre near you? That would certainly wake everyone up to what is going on.

10   BayAreaIdiot   2008 Mar 16, 11:06am  

Hello all

I just have to say something (even though I know certain individuals will come out and say "be careful what you wish for" etc etc etc).

What has happened to Bare (tm) Sterns is literally making me giddy. Particularly when I read that the partners' retirement wealth just went poof.

Is that wrong? If so, I'm sorry. I just can't help it.

11   Paul189   2008 Mar 16, 11:07am  

Can you still get to your safe deposit box during a "bank holiday"?

12   northernvirginiarenter   2008 Mar 16, 11:15am  

Lehman Brothers CEO Richard Fuld has cut short a trip in India, and is currently flying back from there to NYC today. The trip was supposed to last well into next week.

13   northernvirginiarenter   2008 Mar 16, 11:30am  

According to Goldman Sachs, the U.S. economy lost the title of “world’s biggest” to the euro zone this week as the value of the dollar slumped in currency markets.

The size of the Eurozone economic output now exceeds that of the US as calculated with the latest Euro USD exchange rates.

Yikes.

14   northernvirginiarenter   2008 Mar 16, 11:34am  

I don't see how Lehman makes it through this week, given their holding a similiar portfolio of MBS as Bare. Broker dealers live and die on liquidity, and they don't got liquidity and NOTHING to be done to improve this. I'd be interested in hearing any different opinions, am I missing something?

*Not investment advice*

15   danville woman   2008 Mar 16, 11:49am  

OO

FXF and FXY seem to be an easy way to buy the currencies of Japan and Switzerland. Do you see a down side to that approach ?

16   BayAreaIdiot   2008 Mar 16, 11:59am  

Is anyone able to understand how monumental this is? (is it?) - does it mean the Fed is now playing the markets or making PPT explicit? I don't get it...what is this lending straight to dealers thingy?


First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

17   OO   2008 Mar 16, 12:16pm  

Danville woman,

as long as the party managing these two ETFs remain sane and solvent, I don't see any downside except the annual management fee.

18   Malcolm   2008 Mar 16, 12:17pm  

They are freaking out on CNBC about this.

Gold has now breached $1000 definitively. I am still cautious about gold, but I have to retract my old predictions about it. No way to foresee just how much the fed would react, and how quickly they would screw responsible savers with this absolutely reckless financial policy.

19   Peter P   2008 Mar 16, 12:23pm  

No way to foresee just how much the fed would react, and how quickly they would screw responsible savers with this absolutely reckless financial policy.

No way to foresee financial recklessness? Huh? :)

20   Peter P   2008 Mar 16, 12:24pm  

as long as the party managing these two ETFs remain sane and solvent, I don’t see any downside except the annual management fee.

I thought ETFs have less counterparty risks than ETNs...

21   OO   2008 Mar 16, 12:29pm  

With big banks like MER and C likely to go down, and LEH almost sure to go down, I don't know how to evaluate counterparty risk any more.

22   Malcolm   2008 Mar 16, 12:32pm  

Peter P Says:
March 16th, 2008 at 7:23 pm
"No way to foresee financial recklessness? Huh? "

I grew up thinking that the government catered to old people with savings. Now that the older voters are broke boomers it is amazing to see how quickly things have changed. It is fascinating to see whose side the fed is on. We are literally going to bankrupt the country to save a few people their jobs. If the big banks failed, no one would take their place?

23   Peter P   2008 Mar 16, 12:33pm  

I grew up thinking that the government catered to old people with savings.

Malcolm, it is a new paradigm. It is different this time. :)

24   Malcolm   2008 Mar 16, 12:34pm  

The graphic for this thread should have been a wheelbarrow full of dollars. I think the time is apropriate.

25   Malcolm   2008 Mar 16, 12:38pm  

What in the world changed? This could literally start wars. Everyone who is holding dollars overseas have basically lost a bunch of wealth this year. If I am on the verge of panic with my little nestegg I can only imagine what people with larger fortunes are fearing. Can you imagine what is going through some older retired person's mind right now?

26   Peter P   2008 Mar 16, 12:39pm  

Can you imagine what is going through some older retired person’s mind right now?

They are wondering what happened.

27   Malcolm   2008 Mar 16, 12:40pm  

So how much do you guys thing the DOW will drop tomorrow, or is there still a drug effect by slashing rates? I was talking about this with family yesterday, I used the metaphor of a drug addict needing a bigger and bigger dose just to get an effect. That's what this interest rate/stock market policy resembles to me.

28   Peter P   2008 Mar 16, 12:40pm  

What in the world changed?

Only change is permanent. But again, the more it changes, the more it stays the same. Human nature is just what it is.

Survive and thrive!

29   Peter P   2008 Mar 16, 12:41pm  

So how much do you guys thing the DOW will drop tomorrow, or is there still a drug effect by slashing rates?

Dow futures are currently down about 200 points.

30   Malcolm   2008 Mar 16, 12:42pm  

They are reporting market after market around the world taking huge hits right now.

There is a paradox. In economics I believe there is a concept of not being able to have inflation and recession at the same time. One is going to win over the other.

31   Peter P   2008 Mar 16, 12:43pm  

In economics I believe there is a concept of not being able to have inflation and recession at the same time.

What about stagflation?

32   Malcolm   2008 Mar 16, 12:44pm  

"probably the same thing thats been going through 20 somethings mind for several years: we are fucked.."

Any color but green is the saying on CNBC now. Nice!

Black = oil good
Gold = gold good
Silver = silver good

33   Malcolm   2008 Mar 16, 12:46pm  

Peter P Says:
March 16th, 2008 at 7:43 pm
"What about stagflation?"

I used to wonder about that myself. I think the answer is that stagflation is not a recession, it is just inflation with no real growth.

34   Richmond   2008 Mar 16, 12:46pm  

" They are wondering what happened."

Yes, they are and they vote.

What will the unemployment numbers look like because so many of the boomers won't be able to retire and have to keep working. I had a co-worker that had to keep working into his mid 70's thanks to Keating.

35   Malcolm   2008 Mar 16, 12:49pm  

This pattern has clearly changed the normal makeup in the workforce. I call them entrenched boomers, because they use the Civil Rights laws to entrench themselves in low value add expensive corporate positions.

36   Peter P   2008 Mar 16, 12:51pm  

I think the answer is that stagflation is not a recession, it is just inflation with no real growth.

It is all linguistics. :)

When we have more people in the world than there should be, anything is possible.

37   Malcolm   2008 Mar 16, 12:51pm  

Where are the scapegoats? I've been patiently waiting to see some heads roll but it's not PC to blame anyone anymore. They started parading bankers infront of Congress but now there is no finger pointing. There really needs to be finger pointing.

38   Malcolm   2008 Mar 16, 12:53pm  

Peter P Says:
March 16th, 2008 at 7:51 pm
"It is all linguistics.

When we have more people in the world than there should be, anything is possible."

How come when I say there are too many people in the world, people like you ask me if I am really serious?

39   Malcolm   2008 Mar 16, 12:54pm  

TOB :)

40   Peter P   2008 Mar 16, 12:54pm  

I’ve been patiently waiting to see some heads roll but it’s not PC to blame anyone anymore.

What about mortgage brokers? They are a small group and they are the detached "money" guys (as opposed to the likable realtors).

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